Can The Strong Run In Samsung’s Memory Business Continue Into 2018?

Samsung Electronics (OTC:SSNLF) published its Q3 2017 earnings on Tuesday, October 31, reporting record quarterly operating profits that were driven primarily by strong demand and tight supply for DRAM and NAND memory, as well as components such as mobile OLED displays. Samsung’s revenues for the quarter grew by about 30% year-over-year to 62.05 trillion won ($55.3 billion) with operating profits expanding by 180% to 14.53 trillion won ($12.96 billion). Operating profits from the memory business almost tripled compared to the year-ago period to 9.96 trillion won ($8.9 billion). While the memory markets are cyclical, we believe that there is a possibility that the strong results could continue in the near term. In this note, we take a look at some of the factors that could influence Samsung’s memory operations into 2018.

Trefis has a $1,900 price estimate for Samsung, which is around 10% below the current market price.

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DRAM Market Could Remain Stable Over 2018

The DRAM business, which is the biggest driver of Samsung’s components business, is likely to see stable prices through 2018, with global DRAM bit supply forecast to grow by 19.6 % in 2018, with bit demand growing at a higher rate. Mobile vendors have been increasing the processing power of their devices as they look to cater to graphics-intensive applications, while trends such as machine learning and analytics are stoking a need for more memory from the data center market. Moreover, the three major DRAM vendors who control much of the industry supply – Samsung, Micron and SK Hynix – have been circumspect about capital expenditures, focusing most of their investments on technology transitions and process optimizations rather than outright capacity expansions. While the build-out of some new fabs is underway, it’s unlikely that they will be ready for full-scale production until at least 2019, giving the major DRAM producers at least another year of strong pricing and margins. Samsung, in particular, could benefit, as it expands the supply of higher-value products such as  10nm-class DRAMs as well as high-density server DRAM and LPDDR4x.

NAND Market Will Reach Equilibrium, But Samsung Could Outperform

The outlook for the NAND business could remain more mixed. 2017 proved to be a solid year for the NAND market, driven by strong demand from both the mobile and server verticals, as well as some capacity constraints caused by the migration to or improvement of 3D NAND fabrication processes. However, the market could move towards equilibrium in 2018, as most vendors are likely to reach maturity in their 64- and 72-layer NAND stacking technologies, significantly improving capacity in the industry. For instance, DRAMeXchange expects NAND flash bit growth to come in at around 43% in 2018, while bit demand growth is projected to stand at around 38%. While this will prove a dampener for NAND pricing, Samsung could be impacted less than other vendors. Samsung appears to be ahead of the curve with its 3D NAND transition, as it is already mass producing 64-layer 3D NAND, with its 3D NAND production projected to rise from 50% in Q4 to as much as 60% to 70% in 2018. In comparison, rival SK Hynix is only currently producing 48-layer 3D NAND, with its overall 3D NAND mix expected to ramp up to 40% to 50% by the end of 2018. Moreover, Samsung’s focus on differentiated products such as NVMe SSD for data centers could also help.

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